Is overtime taxed at a higher rate?

The short answer

There is no overtime tax, no overtime rate and no penalty for working extra hours. An hour of overtime and an hour of ordinary pay are the same kind of income to the IRS, taxed on the same schedule. In 2026 overtime is in fact taxed less than ordinary pay for most people, because the qualified overtime deduction takes part of it out of taxable income altogether.

So why does the money land smaller than the arithmetic promised? Because of what your employer held back, not what you owed.

Withholding is a deposit, not a bill

Every payday your employer sends an estimate of your yearly tax to the IRS on your behalf. That estimate is withholding. Your actual tax is worked out once, in April, on the whole year. If withholding overshot, the difference comes back as a refund. It was never extra tax. It was your money, held.

Why overtime gets more withheld

Overtime is a supplemental wage. IRS Publication 15 puts it in the same category as bonuses, commissions, severance, back pay and reported tips. Employers are allowed to withhold on supplemental wages at a flat rate instead of running them through the normal tables:

• 22% on supplemental wages up to $1,000,000 in a calendar year
• 37% on anything above that

If your ordinary pay is being withheld at an effective rate of, say, 11%, and your overtime is withheld at a flat 22%, the overtime portion of that cheque looks taxed at twice the rate. It was not. Twice as much was deposited.

It does not always happen

The same paragraph of Publication 15 that defines supplemental wages also says employers “have the option to treat overtime pay and tips as regular wages instead”. Whether the flat rate applies depends on your employer’s payroll setup and on whether the overtime was paid separately or combined into one cheque with your regular wages. Two people at different companies can work identical hours and see different withholding.

This is worth knowing before you conclude anything from a single pay stub. If your employer folds overtime into regular wages, you may see no change at all.

The bracket worry, which is a different worry

The other half of this belief is that overtime can “push you into a higher bracket” and cost you money. Brackets are marginal: moving up one means the dollars above the threshold are taxed at the higher rate, and every dollar below it is taxed exactly as before. You cannot lose money by earning more. Working an extra shift always leaves you with more after tax than not working it.

What actually reduces the overtime cheque

Social Security and Medicare do, and they do it for real. FICA is 7.65% of overtime just as it is of everything else, and the 2026 deduction does not touch it. That part is not withholding and does not come back.

How to stop lending the IRS money

You do not have to wait until April. Publication 15 tells employers to use an updated Form W-4 so that an employee can account for the expected overtime deduction and receive more money in each paycheck instead of waiting until filing. If you work regular overtime, adjusting your W-4 moves your own money forward by up to a year. If you would rather have the lump sum as a refund, leaving it alone is a perfectly reasonable choice — it just is not a tax saving either way.

Putting a number on it

The calculator below works out the qualified overtime premium and what the deduction is actually worth to you. It answers the tax question. Whatever your employer withheld this month is a separate matter, and it settles itself when you file.